Sonya Banks and I were involved in another bankruptcy case this week where Bank of America has committed fraud and got away with it. We are finding these types of cases more frequently, and if a little tiny business like ours is witnessing these issues, it must be going on thousands of times every day across the country.

Let me explain this area of fraud, which also involves a very important lesson in bankruptcy.

A debtor and his wife (for sake of example we will call them Phil and Jill) filed a Chapter 7 bankruptcy two years ago and surrendered their home. When the bankruptcy was discharged, Phil and Jill began looking for a rental to move into. Before moving out of their home they received a call from their lender, Countrywide (later purchased by Bank of America) who offered them a debt work out so they could continue paying the mortgage.

But little did Phil and Jill know that unless they signed a Reaffirmation Agreement, the lender could foreclose at any time. The phone call from Countrywide proposing a debt work out was nothing more than Countrywide buying time and profiting from Phil and Jill. (Note: Of course, Countrywide or Bank of America has no record of these conversations.)

Phil and Jill continued to make the monthly payments as they agreed to with Countrywide/Bank of America. Two years went by; Jill receives an Intent to Accelerate Sale by registered mail informing her that the house will be sold in thirty days. Jill immediately calls the bank who has no record of the debt work out call from two years ago. Although they do have records of her payments to them, they still claim they have the legal right to foreclose whenever they want because she never paid their LATE FEE from two years ago.

Phil and Jill contact a bankruptcy attorney and the attorney hired Sonya Banks and I to research the issue and see what could be done to help them. What we found was shocking.

LESSON IN BANKRUPTCY

The following information is provided by Attorney Ginsberg, who writes in his response to the debtor:

In most cases, when you take out a mortgage loan, you are signing two different types of agreements. The first type is a promissory note whereby you personally agree to make the payments. The second type of obligation creates a property lien, meaning that you, as the owner of the property, pledges that property as collateral for the loan.

When you file a Chapter 7 and receive your discharge, your personal obligations are extinguished. However, a Chapter 7 discharge does not eliminate the mortgage company’s lien against your property. If you reaffirm your mortgage, you are actually reaffirming the promissory note and your personal obligations to pay.

IMPORTANT FOR BANKRUPTCY ATTORNEYS

As a bankruptcy attorney it is important to advise your clients of this issue when they are filing bankruptcy. If the debtors are going to keep their home, advise them NOT to accept deals made over the phone with lenders. Instead, have them sign a Reaffirmation Agreement to protect the lender from coming back years later and suddenly taking their home like they did to Phil and Jill.

You may want to prepare a handout that is provided to all clients who retain your legal representation that provides them with this important information. Also, you may want to inform the debtors that they need to check to see if any LATE FEES have been accessed by the lender during the bankruptcy process; as this is what caused the foreclosure for Phil and Jill.

THE HOOK, LINE AND SINKER

You may be wondering, like Sonya and I were, HOW could a mortgage company do this? What grounds could they have to do this to homeowners who had paid their mortgage payment on time every month and were never aware of any pending LATE FEE from two years ago? We discovered that when Phil and Jill filed their Chapter 7 bankruptcy petition they were one month behind in payments. But they caught up the back payment before their 341 Meeting and thought everything was okay. However, the lender added a LATE FEE for the missed payment and never told Phil and Jill about it. (How convenient.)

When we discovered this information, we called the attorney, who in turn had Jill call Bank of America about the issue. Bank of America told her that every monthly payment they made for the past two years was going to interest and penalties and now they owe over $6,000 in late fees. According to their records, the $1,800 mortgage payment was all going to fees and interest. It is so amazing how greedy and deceitful banks look at this situation and actually get away with fraud.

Example: I loan you $100. You said you would pay me $50 for 2 months on the 30th of the month. At 12:01am on the 30th, I add on a late fee of $25. I do not tell you. When you pay me $50 this month, $25 goes to the late fee and $25 goes to principle. But you are now in arrears of $25 on your regular monthly payment so I get to add on another $25 late fee. Now, when you send in $50 next month, you are no longer making a monthly payment. Instead, you are simply paying me late fees and penalties. This is exactly what Countrywide and Bank of America did to Phil and Jill and conveniently never told them until they decided to take their home and sell it on the courthouse steps.

MY THOUGHTS

This type of fraudulent activity is going on all across America which is why I titled this article: How Banks Are Contributing to (and Still Profiting) from the Decline of the Mortgage Industry.

For what it is worth, I am outraged over the fact that lenders can get away with doing this to homeowners. In fact, it just so happened that Phil and Jill had paid on their home for 18 years. They had raised their children in the home and they were emotionally attached to it. But does a lender care? Of course not. They wanted to treat Phil and Jill like renters for the past two years until they got ready to make some quick cash. Then they turned over and foreclosed with no notice whatsoever because of a one month late fee that accelerated to $6,000. This is insane!!

I suppose that Phil and Jill could have hired an attorney to help them fight the fact that they were never notified of a one month late fee that was imposed when they filed bankruptcy. But does Phil and Jill have the money to afford an attorney right now? Of course not. They were faced with less than 30 days to move because Georgia is a non-judicial foreclosure state. Phil and Jill had no choice but to temporarily move into a hotel which removed their son from his school district. Their lives are essentially a mess right now; all caused by the greed of Bank of America.

And Bank of America gets many more perks and benefits than poor Phil and Jill will ever get: (1) They have received thousands of dollars in interest fees for the past 18 years from Phil and Jill so they already made their money on the house; and (2) They can foreclose on the property, sell it for any amount and any remaining balance will get reimbursed by their insurance; plus (3) Bank of America was one of those banks that received bail outs from the taxpayers, promised to help the country get back on its feet by granting small business loans, yet had to be forced by the government to comply, which they never fully did. (Hint: If they tell one lie, they will tell a million more.)

I was raised to treat people the same way I wanted to be treated. When I went to school, we called this the Golden Rule. But for some reason, people who are running banks like Bank of America (and many other thieving, malicious and greedy banks across America) enjoy hurting people and throwing homeowners out of their home. The entire country is in too great of a financial crisis to do this to homeowners; especially those who have demonstrated honest, loyal and faithful payment histories. These actions will only lead to larger financial problems for the country and therefore is not a win/win situation; just a one sided greedy one for these types of banks.

WHAT CAN YOU DO TO FIGHT BACK?

For those of you who can remember back twenty years ago; banks did not do these kinds of things to homeowners. Banks had a respect for homeowners because they were the backbone of their business. But when banks did not get their way with imposing the Means Test and forcing more people to file a Chapter 13 back in 2005, they found other legitimate (but fraudulent methods) of getting more money. At this point in time, I believe the only banks you can trust are the banks who did NOT receive benefits from the government bailout money. (Although a bankruptcy judge told me a few months ago that he strictly deals with cash because he said this is the only way to control your money. Unfortunately, this is often hard to do in the digital society we live in.)

Therefore, you may want to consider finding a local credit union or neighborhood bank and transfer your business there. You could begin by opening up a free checking and slowly transitioning your business to the new bank. This is what I did. I had a Wells Fargo account for my company and found a local neighborhood bank to do business with. It took about two months, but I now have everything transferred over to the neighborhood bank account and there has been no disruption in my business or personal banking. To find neighborhood banks in your area, look in your printed or online Yellow Pages. To find a credit union in your area, visit: